Shareholders to oppose UBS funding

UBS, one of the biggest casualties of the US subprime turmoil, faces a shareholders' revolt over plans for a massive infusion of funds from Singapore and the Middle East to improve its capital ratios.

The move comes as it emerged that the mystery Middle Eastern investor ploughing SFr2 billion ($1.73 billion) into UBS's recapitalisation is from Saudi Arabia. "It's a reasonable assumption the ruling family was involved and approved [ the deal]," said one figure with knowledge of the negotiations.

Details of the Saudi royal family's involvement were unclear, but one banker believed that Prince Sultan, the crown prince and defence minister, was a leading figure in the deal.

The investment is understood to be the result of a long relationship between the private banking arm of UBS for the Middle East, headed by Michel Adjadj, and the Saudi royal family. Prince Sultan was not available for comment and UBS declined to comment.

The investor's insistence on anonymity, which sparked speculation since the arrangement was announced last week after a massive writedown on UBS's portfolio of mortgage debt, was among concerns raised by critical UBS shareholders yesterday.

One influential Swiss institutional investor called on shareholders to reject the proposal to raise SFr13 billion from sovereign wealth funds.

A second investor demanded a special audit to look at how the bank could have made such massive losses.

The danger of a revolt at the special shareholders' meeting in February to approve the measures prompted the Swiss National Bank to take the unusual step of recommending the recapitalisation.

Philipp Hildebrand, the SNB's deputy chairman, said: "This is a very good deal. It is very important for UBS and for the country for shareholders to understand this at the extraordinary general meeting."

Ulrich Grete, head of the Swiss Social Security Compensation Fund, an institutional investor, said the terms offered to the government of Singapore and the Middle East investor were unfair to UBS shareholders. "I believe this solution disadvantages existing shareholders," he said.

Mr Grete also called on UBS to name the mystery investor, as its almost 2 per cent stake would make it one of the biggest single shareholders in the bank.